This watchdog blog, by journalist Norman Oder, offers analysis, commentary, and reportage about the $4.9 billion project to build the Barclays Center arena and 16 high-rise buildings at a crucial site in Brooklyn. Dubbed Atlantic Yards by developer Forest City Ratner in 2003, it was rebranded Pacific Park in 2014 after the Chinese government-owned Greenland Group bought a 70% stake in 15 towers. New York State still calls it Atlantic Yards. Contact: AtlanticYardsReport[at]hotmail.com

Saturday, April 19, 2014

The New York Times, which astoundingly had not reported on Forest City Ratner's joint venture with the Chinese government-owned Greenland Group to buy 70 percent of the remaining Atlantic Yards project, today has a scoop: the first tower is delayed one year (also disclosed to SEC), signaling that Forest City has not quite "cracked the code" as claimed for modular construction, and Greenland has big plans:

Now the developer is completing a deal to bring in a Chinese partner and the company says it will accelerate construction and will start work later this year on three additional buildings, comprising over 900 apartments.
But the three new residential towers would be built conventionally, not with the pathbreaking modular, or prefabricated, system that Forest City had said would provide quick delivery and millions of dollars in savings.
The developer’s new partner, Greenland Holding Group, which is buying a majority stake in the development, is eager to build quickly in Brooklyn’s booming market. Indeed, its executives have said they want to complete Atlantic Yards within eight years. But real estate executives said the Chinese company was not persuaded that the modular construction was preferable.
Forest City executives said for the first time that they had trouble working out all the kinks at the factory in the nearby Navy Yard, where 145 workers transform tubular steel chassis into fully equipped apartments.

Only 122 of 930 needed modules have been delivered and installed. “It’s been terribly frustrating," CEO MaryAnne Gilmartin told the paper. "But I don’t think this is a referendum on modular. The best way to prove that this works is to build B2.”

Which buildings?

One rental tower will be erected next to B2, according to the Times, which means that B3, at the southeast corner of the arena block, will get started.

Also, a rental building and a condo building will be built on Block 1129, the southeast block of the project, now used mainly as a surface parking lot, which is barely used.

This adds a gloss on the effort by Community Board 2, which generally encompasses Downtown Brooklyn and Fort Greene (and has Forest City Ratner's MetroTech project/hq as a major constituent), to extend its borders to include the entire Atlantic Yards site--and the resistance from Community Board 8.

I've already reported on how Gilmartin has said they want to build on the arena block and the southeast block before tackling an expensive deck needed for vertical construction over the railyard, located north of Pacific Street.

Business bonus

As noted, Brooklyn's "booming market" means it's apparently profitable enough for Greenland to build conventionally, after Forest City said it wasn't.

If modular is not working out (yet), the partnership with Forest City has already reaped dividends, via the $249 million in cheap capital reportedly coming, a fact unmentioned in the Times article. That could save the joint venture tens of millions of dollars, maybe more than $100 million. That makes it more plausible to build conventional.

Consider that Greenland (which the Times doesn't mention is owned by the Chinese government) could not on its own have gone out and hawked EB-5 investments to green-card seeking Chinese investors. That would have been way too circular.

Also note that, perhaps, Greenland doesn't need as large a return as Forest City thought it needed, and/or Greenland wants to make a big splash in Brooklyn.

New subsidies?

The Times reports, yes, on the next push for subsidies:

In recent days, Ms. Gilmartin has met with Alicia Glen, the deputy mayor for housing and economic development, to talk about the next three buildings and the possibility of additional housing subsidies for apartments for poor and working-class families.
“We’re going to drive a tough but fair bargain so we can get this project moving,” Ms. Glen said. “We’re not happy about the pace of construction. But we think that modular is something we should continue to pursue across the city.”
Mr. de Blasio is a longtime supporter of the project, and Ms. Gilmartin served on the mayor’s transition team.
“I’m glad that Greenland wants to make this a priority,” said Letitia James, the city’s public advocate and a longtime critic of the project. “We need to start the affordable housing promised to Brooklynites.”

Plan for first tower, based on 2012 Area Median Income,
which should be higher when tower opens in 2015

Unmentioned is that with the first tower Forest City has reneged on its promise to ensure that half the subsidized units, in floor area, be devoted to two- and three-bedroom apartments. Also the fraction of two-bedroom units is skewed to the moderate-income rather than lower-income "bands."

As I've long suspected, Forest City--which already has a history of trying to renegotiate settled deals--is trying again.

Alicia Glen's quote--"we think that modular is something we should continue to pursue across the city"--sounds very much like a willingness to offer special funding to ensure that modular works out.

Forest City wants to make modular a whole new business line, and the city wants to lower construction costs, so even if it doesn't work with the first building, they may both in the long run want modular to work.

A supportive critic

So Public Advocate Letitia James, however much a critic of the project, falls into Forest City Ratner's trap by advocating that the affordable housing gets done. However much she wants "affordable housing"--who doesn't?--that doesn't mean Forest City and its new joint venture partner deserve special favors.

The issue should be: can Forest City and its new partner be trusted? The answer--regarding everything from the oversight of construction to the failure to hire a promised Independent Compliance Monitor--is no.

James was more on point at the August 2006 hearing on the Draft Environmental Impact Statement, declaring, "It's not about the local economy, but about the developer, his investors, and their economy. And rank politics at its worst."

Little has gone according to plan at Atlantic Yards since it was conceived in 2004, when Bruce C. Ratner of Forest City bought the Nets with the intention of moving the basketball team to a new home in Brooklyn that would be the centerpiece of a large residential development.
Mr. Ratner’s ambitious development plan called for an 18,000-seat arena at the intersection of Flatbush and Atlantic Avenues, a park, an office tower or hotel, and 14 residential buildings with over 6,000 apartments, including 2,250 for low-, moderate- and middle-income families. The city and state provided hundreds of millions of dollars in subsidies.
Mr. Ratner agreed to pay $100 million to the Metropolitan Transportation Authority for the development rights to a rail yard and to build a new rail yard.
The proposal was buffeted by lawsuits, a recession and persistent opposition from some residents objecting to the impact of what they said was an oversize complex.

Actually, the project was conceived as early as 2002, and announced in December 2003. (See the original public relations materials.) At that time, it the arena was part of a project that was not merely a "large residential development" but rather four office towers and eleven residential towers, with 4,500 units, and space for 10,000 office jobs. (Later, one more tower was added, at Site 5.)

Initially, the arena was supposed to seat 20,000 people; it was later downsized to 18,000 seats. There was no "park" but rather publicly-accessible, privately managed open space. So it wasn't merely an "office tower or hotel."

The $100 million Ratner pledged to the MTA was--it goes unmentioned--renegotiated, with Forest City getting the authority to agree to accept $20 million for the plot of land needed for the arena, and to allow 21 years to pay the remaining $80 million, at a gentle interest rate.

The deal

The Times reports:

Forest City agreed to sell a 70 percent stake in Atlantic Yards (excluding Barclays Center and B2) for about $200 million to Greenland. As a result, Forest City had to reduce the value of its $527.4 million investment in the project by about 45 percent.

It's a little more complicated than that, if you read the fine print. Forest City has not had to reduce the value of its investment by 45 percent, since that $242.4 million "impairment" is actually $148.4 million net of tax.

The joint venture

The Times reports:

The joint venture will be overseen by a board with five members, three appointed by Greenland and two by Forest City. Ms. Gilmartin said, though, that the two companies had equal say over key issues: architects, contractors, unit mix, scheduling and community relations.

That obscures the fact that Greenland's ultimately in control, as shown in the decision to build these three towers conventionally. Yes, a five-person board of directors would be established, with Greenland appointing the Chairman, CEO, and CFO, and Forest City Enterprises appointing Vice Chairman and President.

Decisions of particular importance, including starting a new building, require a majority vote, including a vote from one appointee from both, which "in effect requires that both Greenland and FCRC agree to such decisions," according to a memo from Rachel Shatz of Empire State Development, the state agency overseeing/shepherding the development.

However, the agreement does provide for a possible buy-out in the event of a deadlock among the members of the Board of Managers and it also provides for a dilution of a member's interest if it fails to meet certain obligations. "Accordingly, it cannot be assumed that the 30%-70% divisions of interests described above is a permanent arrangement," Shatz wrote.

Unmentioned

Not only is the EB-5 deal unmentioned in the Times, so too is the planned green roof for the arena, which Greenland will help build, aiming to improve the esthetics for apartment dwellers and also block bass escaping from the arena during certain shows.